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| Author: | Evans, M. D. D. |
| Title: | FX trading and exchange rate dynamics |
| Journal: | Journal of Finance
2002 : DEC, VOL. 57:6, p. 2405-2447 |
| Index terms: | Exchange rates Floating rates International trade |
| Language: | eng |
| Abstract: | The author examines the sources of exchange rate dynamics by focusing on the information structure of FX trading. The stucture permits the existence of an equilibrium distribution of transaction prices at a point in time. The author develops and estimates a model of the price distribution using data from the Deutsche mark/dollar market that produces two striking results: (1) Much of the short-term volatility in exchange rates comes from sampling the heterogeneous trading decisions of dealers in a distribution that, under normal market conditions, changes comparatively slowly, (2) public news is rarely the predominant source of exchange rate movements over any horizon. |
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